- If you miss several consecutive credit card payments, the credit card company may take legal action.
- You can call the collection agency to arrange a settlement without incriminating yourself.
- Skipping the lawsuit can result in wage garnishment or tax refunds, so it’s important to respond before the deadline.
- Read more stories from Personal Finance Insider.
Legal battles are scary enough, but being sued by a powerful credit card company for old debts can be daunting. If you are unable to pay your credit card bills due to financial difficulties, it can be difficult to know how to respond to such a lawsuit.
Nevertheless, ignoring a lawsuit from a credit card company will only create bigger problems later, so it is better to deal with the problem head-on in time. Here’s what you need to know about credit card debt collection lawsuits.
Can a credit card company sue you?
In short, yes, they can technically sue you.
After 180 days of missed credit card payments, your credit card company can do three things:
- They can pay off the debt without ever filing a lawsuit, probably because the debt amount is less than $8,000 and not worth incurring additional legal fees.
- They can sell the debt to a third-party collection agency, which can threaten to file a lawsuit without filing one.
- They can take legal action to try to get you to pay a one-time settlement or set up a payment plan to pay off debts.
Seventy million Americans have delinquent credit card debt with third-party collection agencies, and nearly 15% of those collection efforts turn into lawsuits, according to a Consumer Financial Protection Bureau study.
Here’s what to do if a credit card company sues you.
Step 1. Respond to the invitation before the deadline
If a credit card company sues you, you will receive a summons, in person or by mail, depending on the laws of your state.
A subpoena contains information about who is suing you, how much you owe, your court date, and the deadline to respond. Depending on the state you live in, the time frame may be 21 to 30 days from the date the subpoena was served on you.
Lawyer James Smith, a partner at Fair Credit Attorneys, which specializes in credit repair and consumer debt, said failure to respond to the subpoena will allow the credit card company to win by default.
If a judge rules against you in default in court, the credit card company can take money from your bank accounts to collect payment, which means they can legally take money from your savings or checking account to cover the amount you owe. Your wages and tax refunds can also be garnished to collect the debt, meaning up to 25% of your paycheck automatically goes to a debt collector before you can even touch it.
Step 2. Call the collection law firm and set up a payment plan
Settling the lawsuit out of court by setting up a payment plan may be the best way to end the lawsuit. Your credit card company will most likely be represented by a collection law firm handling the lawsuit.
It’s best to call the collection company directly to set up a payment plan, but remember that these phone calls are recorded and anything you say can be used against you in your lawsuit.
Smith says every situation is different, but in general you should avoid taking responsibility for the debt unless you review the details of the debt itself and confirm that those details are correct. Make sure you always respond to the summons on time and contact the collection law firm.
Step 3. Get Organized
Gather old credit card contracts, statements, and documents and organize them chronologically. You may need to comb through these documents with a fine-toothed comb to verify that the amount of debt you are being sued for is correct.
You can hire a fair credit or consumer protection attorney, but if you can’t afford one, here are some additional resources:
How can I prevent a credit card company from suing me?
Before a credit card company sue you, you will likely receive phone calls, letters, emails and alerts on your online banking platform in an attempt to collect the debt. If you ignore these attempts, a credit card company is more likely to sue you to collect payment.
Responding to these phone calls and alerts to set up a payment plan can avoid a lawsuit, but, again, keep in mind that these phone calls are being recorded and anything you say can be used against you.
Know your consumer rights
Under the Fair Debt Collection Practices Act (FDCPA), you are entitled to the following when dealing with credit card debt collections:
- The statute of limitations for credit card debt ranges from three to ten years, depending on your state. This means that you cannot be sued for a debt that predates the statute of limitations.
- You have the right to get more information about the debt you allegedly owe. You can ask for past credit card statements and contracts and see if they match what’s on your records.
- You have the right to dispute your debts if they are incorrect.
- A collection agent cannot conceal his identity in order to collect a debt. They should say the name of their business and other names of businesses they represent at the start of the phone call.
- Collection agents are allowed to call you between 8 a.m. and 9 p.m., but you can ask them to call you at a more convenient time.